RBA’s Lowe on policy implications of Australia’s higher terms of trade

Philip Lowe, as assistant governor at the Reserve Bank of Australia, on Wednesday cautioned against making premature assumptions about the recent rise in Australia's terms of trade on policy decisions.

At the Australian Industry Group's 11th Annual Economic Forum in Sydney, Lowe said: "There would seem to be little benefit in changing the structure of the economy to reflect the new relative prices, only for the old set of relative prices to reassert themselves quite quickly. However, given that it is being driven by structural changes in the global economy, it is likely that commodity prices will be above their average over recent decades for some time yet. If this is the case, Australia will do very well."

Lowe said the price of Australia's exports relative to the price of its imports, or terms of trade, had increased substantially since the early 2000s following a surge in commodity prices. However, he cautioned against anticipating the current trends to hold in the future.

"The best way of dealing with this uncertainty is to make sure that the economy retains its flexibility to deal with whatever set of relative prices the global economy delivers us," he said.

Click here to read the speech.